Financial Health Checks Your Business Needs Every Quarter
As a business owner, you’re likely doing about a dozen things each day, between overseeing your employees, impressing your clients and actually delivering your goods or services. It’s easy to let the numbers fall by the wayside until tax time, when you’re forced to focus on them. However, looking at your financial picture only when it’s tax time is akin to checking your oil only when your “check oil” light goes on.
Quarterly financial health checks help ensure that you’re on top of your financial situation, but they also allow you to capitalize on opportunities and find potential issues before they grow. Many businesses treat it like an appointment they’d never miss with themselves for a good reason.
The Cash Flow Reality Check
Cash is the lifeblood of your business. A quarterly check on your cash flow gives you an idea of how you’re operating. Regardless of what your year-end profit report states, if you’ve got bills coming and you don’t have any money set aside for them, your financial picture isn’t what you think.
Quarterly assessments help identify patterns that didn’t emerge this quarter but may seem familiar to the eye over the course of time. Are your receivables taking longer than they did a few months back? Did you experience a seasonal dip last year around this time and forgot about it? These trends may not look obvious in the throes of day-to-day operations, but they become apparent when you assess three to four months’ worth of data.
The goal is simple: to ensure that you can cover obligations with enough wiggle room for that unexpected expense that’s guaranteed to pop up anyway.
Tax Position Planning
Unless you’re getting audited, most business owners only think about taxes annually and it’s usually in a mad dash before April or unexpectedly upon receiving a bill they weren’t prepared for. A quarterly check on your tax position allows you to avoid all of this unnecessary stress.
When you check in on your tax position quarterly, you can adjust estimated payments according to what you’re actually experiencing. Are you having an unexpectedly good year? Save more now instead of a big bill in April. Is this year slower than hoped? Now’s the time to adjust down and utilize that cash flow within the business. A trusted tax accountant during the quarterly positions can help highlight missed deductions and credits (on top of ensuring all obligations are being met throughout the year) in addition to anything owed.
You’ll also be able to assess timing for large purchases. Should I buy that in December or should I wait until January? The latter option seems great, but only if you’ve assessed how it will benefit (or hurt) you before the end of the year.
Profitability Metrics That Matter
Revenue is great; profitability is what’s going to keep your business running. Assessing your quarterly metrics must involve an honest approach of which product lines and services are most useful for you.
Assess profitability by product line, type of service rendered, and type of client secured. What if your most time-consuming venture is turning out to be the least profitable venture? What if a small sector is doing the heavy lifting? You need to assess what’s working for you and where you should devote more time and effort in the next quarter.
Assess expenses as well—not to cut them but to understand them better. Are costs accurately scaling with growth? Are there expenses obtained months ago that make no sense today? Sometimes a quarterly assessment allows for cancellation or negotiations of missed subscriptions or vendor contracts.
Budget vs. Reality
Whether you established a budget at the top of the year (and even if you didn’t), quarterly assessments allow you to determine what you intended vs. what actually happened. It’s not about punitive measures involving variances; instead, it’s merely useful information either way.
Did you over-budget marketing costs because an exciting opportunity presented itself? Not necessarily bad; that’s informative. Did you under-budget labor costs because you’re running leaner than you had intended? Again, just information for better decision making.
As time goes on, comparisons can be made between what was projected and what’s actually happened, along with what’s forecasted for the next quarter or year, because now, there are three months’ worth of data instead of educated guesswork.
The Forward-Looking Piece
The best part about quarterly assessments is that they not only involve what happened before, but also what’s going to happen next. Depending upon the quarter, it’s not as though you’ve only got 9, 6 or even 3 months left to make changes; these are positive endeavours worth exploring.
If you see something happening that you don’t like—make the change. If there’s something you’d like to become, start fine-tuning it now. If you’re projected to have the best year yet, what changes can occur as a result?
Making It Happen
The biggest challenge associated with quarterly assessments tends to be getting one scheduled and following through on it. Block out 1-3 hours every quarter—ideally, in the month subsequent to the close of each quarter. Prepare financial statements relative to your business at least three: profit & loss statement, balance sheet, cash flow statement—as well as those metrics unique to your enterprise.
There’s no need for full days or complex processes; instead, use those hours directed and scope everything needed with clear questions and expectations to get clear on making progress moving forward.
Sometimes this works best when done alone; other times, it makes sense for you and key individuals/staff members or financial advisors to engage in discussions that make this clearer.
Usually businesses that take their financial temperature quarterly are able to navigate hard times better than others while thriving when times are good like their competitor counterparts. It’s not about perfection; it’s about proactive engagement at a minimum three times a year.